http://online.wsj.com/article/SB10001424052748703438604575315182025721578.ht... TECHNOLOGYJUNE 20, 2010 Funds Invest in Privacy Start-Ups Companies With Ideas on How to Protect Personal Information Are a New Favorite of Venture Capitalists By PUI-WING TAM And BEN WORTHEN As privacy snafus mount across companies such as Facebook Inc. and AT&T Inc., venture capitalists have spotted a new market opening and are pumping millions of dollars into privacy-related start-ups. This month, online privacy start-up ReputationDefender Inc. plans to disclose that it has raised $15 million in new venture funding—even though the company wasn't actively looking for new cash. SafetyWeb Inc., which helps parents monitor their kids' online activities, said Thursday it closed $8 million in funding. And Truste, which offers seals of approval to websites that meet certain privacy standards, raised $12 million earlier this month. Many of the investors include top-tier venture-capital firms such as Kleiner Perkins Caufield & Byers and Accel Partners. Venture firms such as Jafco Ventures, Atlas Venture and Battery Ventures also have invested in online-privacy start-ups in the past few months. As privacy snafus mount across companies such as Facebook and AT&T venture capitalists have spotted a new market opening and are pumping millions of dollars into privacy-related start-ups. Ben Worthen explains. "There are at least a dozen [online privacy companies] now in various stages of making the rounds in the venture world," said Theresia Gouw Ranzetta, a venture capitalist at Accel, which backed Truste and is also a major investor in Facebook. "We're actively looking for more [privacy] deals." The jump in privacy-related investments underscores how ways to protect privacy on the Web and on mobile gadgets is increasingly viewed as a real business. That's a shift from a few years ago, when companies struggled to sell such services, said Carsten Casper, an analyst at researcher Gartner. Among those that crashed earlier this decade was start-up Privacy Inc., which offered dummy email addresses for online purchases. But in the wake of recent privacy flaps involving AT&T, Facebook, Apple Inc. and others, consumer awareness has grown. "Privacy is a big issue and it's going to get bigger because people realize it can be used against you," said Ted Schlein, a venture capitalist at Kleiner Perkins and a ReputationDefender board member. "That spells market opportunity." Many venture capitalists liken today's privacy market to the technology-security market a decade ago, when companies such as Barracuda Networks Inc. were searching for solutions to deal with viruses and hacking. Security has since become one of tech's hottest markets, with businesses increasing their security spending by 10% to $33.8 billion world-wide in 2009, even as total tech spending fell 9% to $1.5 trillion for the year, according to Forrester Research. Yet despite the surge of privacy investments, venture capitalists and start-ups still face a challenge in getting people to pay for confidentiality and discretion,, say analysts. A recent study by think tank Ponemon Institute LLC found that identity theft victims still don't behave differently online from others on social networking sites such as Facebook. Only 13% of the general public and 19% of identity theft victims said they are responsible for protecting their own privacy on social-media sites, according to the study. Investors acknowledge the privacy market is nascent and will evolve as regulations are introduced. Still, the venture investments are an early look at the solutions emerging to help combat privacy incursions. Some of the recently funded start-ups are aimed at giving consumers tools to defend their privacy. ReputationDefender, which launched in 2006, provides a service that costs between $10 a month and $1,000 annually to monitor what is said about an individual online. Its tools can help remove private information from certain websites. SafetyWeb, funded by Battery Ventures, and SocialShield Inc., funded by Venrock Associates and others, have launched websites that parents can use to help them track and analyze their children's online behavior. The services tell parents when others have posted and tagged photos of their kids online, giving them a chance to have them removed, among other thing. Abine Inc., funded by Atlas Venture, this month launched a product that can block online tracking and opt out of online ad networks. Truste, which until 2008 was a nonprofit, works primarily with corporations that want their websites certified as having met certain privacy standards. Executives involved in privacy start-ups say the interest by venture capitalists has become intense. Michael Fertik, chief executive of ReputationDefender, said more than 20 venture firms expressed interest in investing even though the Redwood City, Calif., company wasn't intending to raise new cash until late this year, he said. In the end, Mr. Fertik took $15 million from Jafco and existing investors' Kleiner Perkins and Bessemer. "It ended up being a competitive situation," he said. He attributes the interest partly to "everyone's being analyzed and digitized online."
